Trusts and Estates 101: From Those In The Know To Those Who Need To Know

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Special Needs, Special Planning

As some of you know, I grew up in a family with a brother who has special needs. Having a disabled relative poses many challenges to parents and siblings alike on an emotional, physical and social level. It can also pose a financial challenge, a challenge, which can usually be met by applying for and receiving government benefits such as Supplemental Social Security Income (“SSI”).

The acceptance of SSI benefits comes with a limitation regarding what the disabled person can financially receive from other persons including their parents. This poses a unique problem when preparing an estate plan for a family with a special needs relative.

Fortunately, in New York and many other states, parents and other relatives can establish a trust known as a special needs or supplemental needs trust for the benefit of their disabled child or relative. Special Needs Trusts provide supplemental benefits to the disabled person beyond the benefits provided by the governmental assistance they receive. In order to preserve their benefits, the trust must be structured in a specific manner.

There are two types of special needs trusts-trusts created with the disabled persons assets and trusts created by third parties including the disabled person’s parents. The first type is created when the disabled person receives a direct payment from a settlement or a bequest under a will. The disabled person’s legal guardian serves as the Grantor of the trust and upon the disabled person’s death, the remaining assets are first used to repay any advancements made to Medicaid. Any additional assets remaining are distributed to the disabled person’s then living relatives.

The second and more common type of trust is created by a third-party, typically the disabled person’s parents. During the parents’ lifetime or at their death, the trust is funded and the trustee of the trust makes payments of the trust assets on behalf of the disabled person. Unlike the first type of special needs trust, upon the disabled person’s death, the remaining assets go directly to the named remainder beneficiaries without any reimbursement made to Medicaid.

Unlike most trusts, special needs trusts are limited with regard to the distributions it can make to its beneficiary. In New York, there is a statutory requirement that the trust must only make distributions once all governmental benefits are exhausted. Additionally, while many trusts are used for the health, education, maintenance and support of their beneficiary, a special needs trust can only be used to provide additional comforts to the disabled person. This can include entertainment, an assistant for the disabled person and any other services not covered by government benefits.

In addition, the trust instrument must make clear that the disabled person can never have direct access to the trust’s assets nor can they have any discretion over the distributions made to him or her. With all these unique restrictions, it is essential that the person selected to be the trustee is not only aware of how these trusts must be managed, but also must be willing to take a very hands on role in managing the trust for the disabled person’s benefit.

The care of a person with special needs is incredibly important to that person’s family. Many families try to do everything they can to make their disabled relatives feel as normal and as much a part of the family as their other family members. But, when it comes to their financial well-being and ensuring that they receive the best possible care, extra planning and extra precautions must be taken to ensure their main source of care is not threatened.